CPSM CPSM Contract Management & Negotiation 4 — Questions and Answers
Question 1: A supplier submits a claim for additional compensation citing 'commercial impracticability' due to a raw material shortage. Under the UCC, which element is NOT required to support this defense?
- Occurrence of a contingency whose non-occurrence was a basic assumption of the contract
- The contingency made performance commercially impracticable
- The party seeking relief did not assume the risk of the contingency
- The party notified the other side within 30 days of discovering the contingency (Correct answer)
Correct answer: The party notified the other side within 30 days of discovering the contingency
The UCC does not require notification within a specific 30-day window; it requires timely notification but sets no fixed deadline.
Question 2: In a cost-reimbursement contract, which cost is generally considered UNALLOWABLE under FAR Part 31?
- Direct labor costs for engineering work
- Reasonable overhead allocated to the contract
- Lobbying and political contributions (Correct answer)
- Travel costs pre-approved in the contract
Correct answer: Lobbying and political contributions
FAR 31.205-22 specifically identifies lobbying and political activity costs as unallowable under government cost-reimbursement contracts.
Question 3: A buyer wants to negotiate a most-favored-customer (MFC) clause. What is the PRIMARY benefit this clause provides to the buyer?
- It guarantees the supplier will never raise prices
- It ensures the buyer receives pricing no less favorable than the supplier's best commercial price (Correct answer)
- It locks in current pricing for the full contract term
- It prevents the supplier from selling to competitors
Correct answer: It ensures the buyer receives pricing no less favorable than the supplier's best commercial price
An MFC clause entitles the buyer to match the best pricing offered to any comparable customer, not a guarantee of frozen or lowest absolute prices.
Question 4: Which negotiation tactic involves deliberately making an extreme opening offer to anchor the other party's expectations?
- Nibbling
- Anchoring (Correct answer)
- Good cop/bad cop
- Bracketing
Correct answer: Anchoring
Anchoring is the tactic of establishing an extreme initial position so that subsequent concessions still land near the anchoring party's target.
Question 5: A contract contains the clause: 'Time is of the essence.' A supplier delivers goods two days late. What is the MOST LIKELY legal consequence?
- The buyer may only claim incidental damages for the delay
- The buyer may treat the late delivery as a material breach and reject the goods (Correct answer)
- The supplier must pay a penalty equal to 10% of the contract value
- The contract is automatically void upon the missed deadline
Correct answer: The buyer may treat the late delivery as a material breach and reject the goods
A 'time is of the essence' clause elevates delivery deadlines to material contract terms, entitling the non-breaching party to treat any delay as a material breach.
Question 6: During a negotiation, one party introduces a new, minor demand after the main terms are already agreed upon. This tactic is best described as:
- Cherry picking
- Nibbling (Correct answer)
- Bracketing
- Escalation
Correct answer: Nibbling
Nibbling is adding small, last-minute demands after the principal agreement is reached, exploiting the other party's desire to close the deal.
Question 7: A supply agreement requires the buyer to purchase a minimum annual quantity or pay a shortfall fee. This is BEST characterized as a:
- Take-or-pay provision (Correct answer)
- Requirements contract
- Indefinite-delivery indefinite-quantity (IDIQ) clause
- Evergreen clause
Correct answer: Take-or-pay provision
A take-or-pay provision obligates the buyer to either purchase a specified minimum quantity or compensate the supplier for the shortfall.
CPSM CPSM Contract Management & Negotiation 4
A supplier submits a claim for additional compensation citing 'commercial impracticability' due to a raw material shortage.
Under the UCC, which element is NOT required to support this defense?